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[2016] ZAGPPHC 1002
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Maharaj v New African Alliance Investments (Pty) Ltd (81348/2014) [2016] ZAGPPHC 1002 (16 November 2016)
IN
THE HIGH COURT OF SOUTH AFRICA (GAUTENG DIVISION, PRETORIA)
REPUBLIC
OF SOUTH AFRICA
16 November 2016
Case number: 81348/2014
Reportable
Of interest to other
judges
Revised
In the matter between:
SHAILENDRA RAMESH
MAHARAJ
Applicant
And
NEW AFRICAN ALLIANCE
INVESTMENTS (PTY) LTD
Respondent
JUDGMENT
BRENNER
AJ
[1] This application
involves a claim for the winding up of the respondent, New African
Alliance Investments (Pty) Ltd ("the
company") at the
behest of Shailendra Ramesh Maharaj ("Maharaj"). Maharaj
has applied for a provisional winding
up, alternatively, a final
winding up order. For the sake of convenience, this application is
referred to as "the liquidation
application".
[2]
Maharaj's locus standi to bring the application is based on
his being a shareholder and creditor. Additionally, he contends that
he was a director and that his subsequent removal as such was
unlawful. Of which, more later.
[3]
His case for the liquidation of the company is based first and
foremost on its being just and equitable to liquidate the company
under section 344(h) of the old Companies Act, 26 of 1973 ("the
1973 Companies Act"), alternatively, on section 344(f),
based on
an inference that it is commercially insolvent and unable to pay its
debts timeously.
[4]
The law relating to the liquidation of companies is prescribed
in part G of chapter 2 of the Companies Act, 71 of 2008 ("the
2008
Companies Act"
;), read with chapter XIV of the 1973
Companies Act. Under
the 2008
Companies Act, the
laws relating to
insolvency continue to apply in terms of the 1973 Act.
[5]
The winding up of a solvent company is dealt with under
section 81(1)(d)(iii) of the 2008
Companies Act, where
it is just and
equitable to do so. If one assumes that it is not proven that the
company is insolvent, whether commercially or
factually, then section
81(1)(d)(iii) of the 2008
Companies Act applies
. In my respectful
view, a case has not been made out for the insolvency of the company.
[6]
The provenance of the disputes which culminated in the
liquidation application is summarised below. I have endeavoured to
create
a timeline for the purpose of coherence, as gleaned from the
plethora of affidavits pertaining to the applications launched by
Maharaj in 2013 and 2014. I will refer to the 2013 application as
"the preservation application" and the 2014 application,
being this application, as "the liquidation application."
[7]
In the liquidation application, mention is made to affidavits
and documents in the preservation application, which are incorporated
by reference into the liquidation application. In my view, it was not
inappropriate to do so, since the events which culminated
in the
preservation application are, in the main, directly relevant to the
grounds for the liquidation application.
[8]
The facts are scattered all over the place like so much
flotsam and jetsam. This proved a difficult exercise as no chronology
of
events was produced by Maharaj. It would have been appropriate for
his legal representatives to have done so, given these constraints.
[9]
For the purpose of coherence, I have conjunctively analysed
the averments made in both the preservation and liquidation
applications.
[10] According to his
version, Maharaj is a 51 year old businessman who works and resides
in Verulam, Kwa Zulu Natal. He had been
involved in various business
dealings with an influential businessman, one Gladstone Reuben
("Reuben") since 2001, and
had allegedly invested about R50
million in business opportunities introduced to him by Reuben. In
some of these dealings, Maharaj
and Reuben involved another
businessman, one Surendra Masilalal Narsi ("Narsi").
According to Maharaj, Reuben never had
funds to invest in the
business, the source of funding coming from Maharaj and others.
[11]
Circa 2005, Reuben approached Maharaj with the business
opportunity of investing in chrome mining resources. The company in
casu
was incorporated to acquire a stake in Ehlobo Group (Pty) Ltd
("Ehlobo Group"). Ehlobo Resources (Pty) Ltd ("Ehlobo
Resources"), was a wholly owned subsidiary of Ehlobo Group, and
Ehlobo Resources owned shares in certain mining companies.
I
interpose to mention that "Ehlobo" is mentioned throughout
as simply "Ehlobo" without reference to whether
it means
"Ehlobo Group" or "Ehlobo Resources". This is not
material to the disputes in casu.
[12]
The company's registered office is in Sandton, Gauteng. The
company commenced business on 15 July 2005 with its industry being
described
as
"financial intermediation, except insurance and
pension funding."
Its issued share capital amounted to
R600,00, according to the Cipro search referred to below.
[13] Maharaj contends
that he and Narsi each lent the amount of R7 570 000,00 as start-up
capital to the company, thereby creating
credit loan accounts against
it. In his view, it was agreed that the loan accounts would be repaid
first, then he, Narsi and Reuben
would receive a one third share of
profits of the company.
[14]
The company came to own an indirect 2,1% interest in
"Samancor", and an indirect interest in Karibo Coal (Pty)
Ltd. The
returns on these investments were expected to be in the
region of R52 million.
[15]
According to Maharaj, he and Narsi were the only directors of
the company in 2005, and on 20 June 2007, Reuben was appointed a
director.
According to Maharaj, he and Narsi were the original
shareholders of 50% each of the shares in the company.
[16] In September 2007,
the company indirectly acquired a 15% stake in "Ehlobo".
The return was
"left in the control of'
Reuben because he
had
"intimate knowledge of the transaction."
In July
2008, US$20 million was offered for the shares in Samancor by Sivi
Gounden, with a potential return of R300 million. It
was aborted
allegedly owing to Reuben's delays, Reuben being a director of the
Ehlobo Group. In the interim, the price of chrome
dropped and Gounden
cancelled his offer. Eventually, the company derived R6 851 061.00
from the sale by Ehlobo Resources of its
shares in Samancor.
[17] In 2008, Reuben told
Maharaj that R2 million was required to pay management fees to
"Ehlobo." Narsi and Maharaj agreed
to reduce their shares
in the company by 10% each on the premise that 20% of the shares
would be sold to Pricilen Govender ("Govender")
for R3
million, to cover the management fee, and to keep a further R1
million in reserve. Maharaj avers that he never met Govender.
[18]
In February 2013, Maharaj was given sight of the CM42 share
transfer form which had been signed by him in blank to implement the
sale of shares to Govender. He noticed the price for the 20%
shareholding at a nominal figure of R120,00, when the actual price
was R3 million. In Maharaj's view, this was a
"fraud on the
fiscus."
[19]
Maharaj disputes that the company ever received the benefit of
the money payable by Govender or Govender's company and, accordingly,
the transfer was invalid.
[20] On observing the
completed version of another CM42, Maharaj picked up that the
transfer of his shares was to New Africa Alliance
Holdings, for a
price of R180,00. Maharaj also observed that he had signed two
directors' resolutions concerning the transfer of
shares which were
invalid for various reasons.
[21] In 2008, Reuben had
suggested another disposal of shares by Maharaj and Narsi by another
10% each, to enable Tumelo Motsisi
and Fezikile Mahlati to acquire
20% in the company. Maharaj said that he would only agree to this
after the company started to
make a profit and the loan accounts were
repaid. He states:
"Accordingly I
did not sign a CM42 document in respect of this transfer and have
never done
so.
Rather curiously, I have now discovered that
the fourth respondent (Narsi), transferred
20%
of his shares
to Keona Group (Pty) Ltd."
[22]
In October 2008, attorneys Cliffe Dekker Hofmeyr ("CDH")
became involved in the sale of the indirect shareholding in Samancor.
Of which, more later. Maharaj maintains that he started to become
circumspect about the affairs of the company and was obstructed
in
his attempts to obtain the company's records.
[23]
On inspecting the records eventually provided to Maharaj, he
observed "several inexplicable inconsistencies." They are
summarised below:
17.1
one Ramnarayan was appointed as director in lieu of Narsi in
March 2008, without his knowledge;
17.2
the auditors were changed in March 2008 without his knowledge;
17.3
the purchase price for the sale of shares to Govender was not
paid to the company; it turned out that the price of R3m was paid to
Ihubo Investments (Pty) Ltd, which has no connection with Ehlobo or
the company;
[24] Until 2009, Maharaj
regarded himself as a 40% shareholder. It was never agreed that the
Keona Group (Pty) Ltd would hold shares
in the company. He now
discovered that he held a 20% shareholding in the company.
[25]
A letter dated 2 February 2009 from attorneys CDH to Maharaj's
attorneys recorded the shareholding in the respondent as:
(i)
Keona Group (Pty) Ltd : 20%
(ii)
New Africa Alliance Holdings (Pty) Ltd : 40%
(iii)
Umzingeli Investments (Pty) Ltd : 20%
(iv)
Shailendra Ramesh Maharaj : 20%
[26] The above was
disputed by Maharaj. CDH replied that there was a shareholders'
resolution which approved the share transfer.
It was only signed by
Reuben and Narsi. Maharaj was not at the meeting and doubts he was
invited to it.
[27]
A resolution attached to the papers dated 9 May 2009, held at
a meeting attended by Messrs Maharaj, Narsi, Reuben and one Tumelo
Motsisi, says the following concerning shareholders' loans (I have
corrected cosmetic spelling mistakes for the sake of convenience):
“
SHAREHOLDERS
LOAN
"There was general
agreement amongst the founding shareholders, being Messrs Reuben,
Narsi and Maharaj, that when the company
was set up, they would all
have equal shareholding, and that Messrs Marsi and Maharaj would
contribute equity financially and Mr
Reuben would contribute through
bringing commercial opportunities and sweat equity. Mr Reuben Brought
the Ehlobo opportunity and
was responsible for running with the
transactions, while Messrs Narsi and Maharaj contributed equity of R7
million each.
The dispute was as to
whether or not the cash contributions amounted to a shareholders'
loan, and if there are such loans, whether
or not the cash
contributions amounted to a shareholders' loan, and if there are such
loans, whether they should be paid first
before any dividends to
shareholders. The contention was that there were no shareholder loans
discussions before, but that the
3 of them would be equal
shareholders.
RESOLUTION
It was resolved that all
three founding shareholders represented by Messrs Reuben, Narsi and
Maharaj would participate equally.
The shareholders agreed that
all three will have equal loan accounts to the company of R7million
each. These shareholder loans will
have to be paid before any type of
distribution
."
(my
emphasis)
[28] On 30 June 2009,
Ehlobo disposed of its indirect interest in Samancor Chrome,
resulting in sale proceeds of R6 923 138,84 being
paid to attorneys
CDH.
[29]
A resolution of the shareholders dated 30 June 2009 (signed by
Maharaj), resolves that the sum of R6 000 000.00 should be
distributed
as follows:
a. To Maharaj, the sum of
R2 000 000,00;
b. To Narsi, on behalf of
New Africa Alliance Holdings (Pty) Ltd ("NAAH"), the sum of
R2 000 000,00;
c. To Reuben, on behalf
of NAAH, the sum of R2 000 000,00.
d. The balance, to Cliffe
Dekker Hofmeyr, for legal services, and for any expenses incurred
subject to prior shareholder approval.
[30]
It appears that the above distributions were duly paid.
[31]
A further distribution occurred via shareholders' resolution
dated 8 December 2009, concerning a balance which remained after
payment
of the above amounts. The sum of R600 000,00 was to be
distributed as follows:
a. To Maharaj, the sum of
R200 000,00;
b. To Narsi, on behalf of
NAAH, the sum of R200 000,00;
c. To Reuben, on behalf
of NAAH, the sum of R200 000,00;
d. The balance, to Cliffe
Dekker Hofmeyr, for legal services, and for any expenses incurred
subject to prior shareholder approval.
[32]
It appears that the above distributions were duly paid.
[33]
In December 2011, Maharaj discovered that a further
distribution of about R6 million was about to become available
immediately.
It appears that this was as a result of Ehlobo selling
its indirect interest in Umcebo Mining for the price of about R6 295
853.00.
Attorneys Edelstein-Bosman Inc ("EB") dealt with
the transaction.
[34]
By this stage, however, relations amongst Maharaj, Reuben and
Narsi had started to deteriorate. Numerous meetings of shareholders
and directors were called, without prior notice, urgently, purporting
to intend to pass resolutions without Maharaj knowing their
nature in
advance of the meetings. Suspicion set in. Narsi continued to attend
directors' meetings even though he was no longer
a director. On 19
July 2012, Ramnarayan apparently resigned and Reuben was appointed a
director. Maharaj was not given notice of
this meeting or resolution.
[35]
Maharaj thereupon refused to sign any more resolutions unless
outstanding matters were resolved. Reuben, however, appeared bent on
gaining access to the above distribution.
[36]
On 17 May 2012, Ehlobo disposed of its indirect interest in
Umcebo Mining, resulting in sale proceeds of R6 295 853.00 becoming
available.
[37]
A resolution of the shareholders dated 17 May 2012 resolves
that the sum of R6 000 000,00 should be distributed as follows:
a. To Maharaj, the sum of
R2 000 000,00;
b. To Narsi, on behalf of
New Africa Alliance Holdings (Pty) Ltd ("NAAH"), the sum of
R2 000 000,00;
c. To Reuben, on behalf
of NAAH, the sum of R2 000 000,00.
d. The balance, to the
trust account of Auditors Arvind Magan and Associates pending further
resolution.
[38] Maharaj refused to
sign the May 2012 resolution.
[39] A meeting on 18 July
2012 turned into a screaming match. Only one matter was agreed,
namely, that the company would open a
bank account. Maharaj, however,
insisted that he, Reuben and Narsi would all jointly have to
authorise bank transactions. Reuben
disagreed.
[40] A meeting was
convened on the next day, being 19 July 2012. Maharaj was not
invited. It appears that Ramnarayan resigned as
director and Narsi
was reappointed. The resolutions were sent to Standard Bank to
facilitate the opening of the bank account.
According to Maharaj,
Reuben and Narsi continued to convene meetings without Maharaj.
[41] On 17 September
2012, Maharaj was invited to an urgent directors' meeting on 18
September 2012. He was unavailable, and told
Reuben so. Nevertheless,
at this meeting, Reuben and Narsi agreed to pay the Umcebo
distribution to the company's auditors, Arvind
Magan and Associates
("AMA"). EB informed Maharaj's attorneys of this intention
and invited Maharaj to launch an application,
if he so required, to
prevent the payment. EB eventually agreed to pay the monies into the
company's bank account.
[42] At a board meeting
on 30 September 2012, Reuben attempted to pass a resolution regarding
the distribution. Maharaj objected,
as none of the proposed
resolutions was provided in advance. The impasse regarding the bank
account arose from the insistence of
Reuben and Narsi that only two
directors should have joint authority to transact. Maharaj was also
becoming concerned that Narsi
was being influenced by Reuben.
[43] On 2 February 2013,
Maharaj met Reuben at a soccer game at Moses Mabhida Stadium in
Durban. Reuben apparently threatened to
remove Maharaj as director of
the company if he persisted in refusing to the release of the money.
[44] On 4 February 2013,
another shareholders' and directors' meeting was convened, with
notice of the resolution intended to be
passed, to remove Maharaj as
a director of the company. Maharaj's attorneys sent a letter
informing Reuben and Narsi that the notice
and resolution were
procedurally defective. On 4 February 2013, CDH withdrew the notice
for the proposed meeting on 19 February
2013.
[45] On 14 February 2013,
a new notice of a shareholders' and directors' meeting was served.
Yet again, Maharaj's attorneys objected
to the validity of the
notices and resolutions. But this time, the objection was ignored. On
22 February 2013, Maharaj served a
notice in terms of
section 165
of
the companies Act, 2008, on the company, dealing with his allegations
of
"financial maladministration of the company's funds,"
to the benefit of Reuben and Narsi. There was no response.
[46] On 8 March 2013,
Reuben voted on behalf of Umzingeli as 20% shareholder to remove
Maharaj as director. Narsi voted on behalf
of New Africa Alliance
Holdings "purportedly" holding 40% of the shares. Maharaj
voted against, with his vote counted
as 20%. No other shareholder
voted. In Maharaj's view, the resolution was invalid owing inter
alia, to the invalid transfer of
shares to Umzingeli, and the invalid
transfer of 30% of his shares to New Africa Alliance Holdings. In his
view, neither of the
latter two parties was a shareholder of the
company. Maharaj persists in his view that he remains the owner of
50% of the shares
in the company.
[47] A Cipro search
conducted on 30 October 2014 reveals the following.
[48] Surendra Manilal
Narsi ("Narsi") was appointed as director of the company on
24 July 2012 and resigned on 8 March
2013. It appears, however, that
this is a mistake and that Narsi did not resign. (Narsi is a 54 year
old businessman who resides
in Congella, KwaZulu Natal.)
[49] Reuben, a 52 year
old businessman, was appointed on 20 June 2007, and remains a
director.
[50] Maharaj was
appointed on 15 July 2005 but was later removed as such. He disputes
the validity of his removal as director.
[51] Jayshree Ramnarayan
lnarman ("lnarman") was appointed on 3 March 2008 but
resigned on the same date. This may be
an error of some sort.
[52] In the result, the
two current and remaining active directors of the company appear to
be Narsi and Reuben.
[53] Arising from the
meeting on 8 March 2013, on 22 March 2013, Maharaj resolved to bring
legal proceedings, to which end he signed
an affidavit in support of
an urgent application in this Court, under case number 17811/2013,
citing the company, Reuben, lnarman,
Narsi and six other respondents.
The notice of motion is not part of the papers. This is "the
preservation application".
[54] In the preservation
application, Maharaj applied to suspend the operation of the decision
taken to remove him as a director
of the company, pending the outcome
of an application to prevent attorneys EB from paying to the company
the sum of R6 295 853,00,
arising from Ehlobo's disposal of its
indirect interest in Umcebo Mining. The application was struck from
the roll on 19 March
2013 for lack of urgency, but was prosecuted
thereafter in the ordinary course, and affidavits were exchanged.
[55] Ultimately, on 27
August 2013, Ms Justice Potterill granted an order to interdict
attorneys EB from paying out or encumbering
monies held in a Section
78(2A) investment account, in the amount of about R6 295 853,00, held
on behalf of the company. The remainder
of the relief sought in
Maharaj's application was postponed to 28 October 2013. It would
appear that part of this relief was an
order to set aside Maharaj's
removal as a director of the company.
[56] In an answering
affidavit from Reuben in the preservation application (dated 3
October 2013), he makes the following significant
statements, (the
first respondent being the company):
"9.
In fact, very
little about what the Applicant (Maharaj) said is accurate or
truthful."
19.
Self-evidently,
there is a deadlock as between what the Applicant contends for (on
the basis of his so-called
50%
shareholding in
the First Respondent) and the balance of the shareholders in the
First Respondent.
To order that the Applicant be
reinstated as a director of the First Respondent would simply result
in the First Respondent not
being able to conduct any business at
all. This cannot be to anyone's advantage. In this regard, I submit
that it would be far
better that this Honourable Court decline to
order the Applicant's reinstatement as a director. The First
Respondent can then continue
to operate in the ordinary course of its
business."
(my
emphasis)
[57]
On 20 October 2014, Mr Justice Tuchten set aside the order of Ms
Justice Potterill dated 27 August 2013, and dismissed Maharaj's
preservation application, with costs. Maharaj contends that there was
no proper prior service on him of the application which preceded
the
order of Mr Justice Tuchten, whether by notice of set down or at all.
It is not necessary to address the issue of whether or
not there was
proper service of the notice of set down, for the purpose of this
application. On 24 October 2014, attorneys EB proceeded
to transfer
the monies to the company's bank account.
[58]
On 4 November 2014, Maharaj issued Summons out of the Gauteng
Division of this Court in Johannesburg, under case number 40257/2014,
for repayment of his loan of R7 570 000,00, alternatively, payment of
50% of the funds standing to the credit of the company and
available
for distribution to its shareholders. The action was defended.
[59]
Two days later, on 6 November 2014, Maharaj launched the liquidation
application before this Court, on an urgent basis, under
case number
81348/2014, (the same case number as this application), for the
provisional liquidation of the company, and enrolled
same for 11
November 2014. It was struck from the roll for want of urgency but
was thereafter prosecuted in the ordinary course,
and answering and
replying affidavits were duly served.
[60]
In Maharaj's founding affidavit in this liquidation application,
dated 5 November 2014, when it was first brought on urgent
grounds,
in annexing the above affidavit of Reuben in the 2013 application,
Maharaj states:
"8.
This being an
urgent application and facing time constraints, I do not wish to
burden the Honourable Court unnecessarily with lengthy
papers, but
the dispute between me, the Respondent Company and the other
directors of the Respondent company is fully canvassed
under case
number 17811/2013 and that matter I do not want to redraft what is
already said under oath in those affidavits and I
annex only the
affidavits hereto
as
Annexures SRM 6,
7,
8 and
9."
[61]
The response of Reuben on behalf of the company (dated 13 November
2014), to the above paragraph, is telling:
"21. I
am
advised that it is impermissible for the applicant to attach
affidavits and ask this Honourable Court to have regard thereto,
without
indicating at the very least what portions are referred to
and relied upon by the applicant. The annexures and the allegations
contain therein, in this regard, fail to be struck out,
alternatively, disregarded by this Honourable Court."
[62]
The company did not bring an application to strike out the
attachments in question. Nor do I consider it inappropriate for
this
Court to have regard to annexures which are pertinent to the material
issues in this application. I consider the company's
answer in this
regard to be cavalier. Nevertheless, the company addressed a large
portion of the disputes in its preliminary introduction
to its
answering affidavit in the liquidation application.
[63]
In his founding affidavit, Maharaj avers that the company is neither
trading nor is it an income-generating enterprise, nor
does it have
employees. In the answering affidavit of Reuben, on behalf of the
company, Reuben had admitted that in March 2013:
"currently
however (the company) is not trading and its only asset is an amount
of cash held in trust by (Edelstein-Bosman
Inc)."
[64]
In the answering affidavit served on 13 November 2014, Reuben goes on
to mention, however, that the company's interest in Ehlobo
Resources
(Pty) Ltd ("Ehlobo") had been realised and the company
stood to benefit from a return of between R3 million
and R4 million.
Therefore, the amount paid to EB was not the company's only asset.
Maharaj in his replying affidavit (served on
19 November 2014),
replies that Reuben is vague about this transaction and provides no
detail of it or any indication of when the
monies will be paid.
[65]
Reuben concedes that
"Whilst it is
indeed
so
that the company is not trading, in sense suggested,
(sic) to suggest that it is not
a
"generating enterprise"
is an oversimplification of the facts, and..... the company's
business is to hold investments
and realise them
as
and when
appropriate."
[66]
Maharaj avers in his affidavit that he still believes that he is a
50% shareholder in the company, but goes on to state that
he is at
least a 20% shareholder. He states that he, Reuben and Narsi all had
credit loan accounts against the company for R7 million
each.
[67]
In support of his case for urgency, mention is made of the order of
20 October 2014 which had the effect of permitting EB to
release the
monies to the company, and his apprehension that same would be
dissipated to his detriment qua shareholder and creditor,
and for the
personal benefit of Messrs Reuben and Narsi. He had established that
the monies were paid on 24 October 2014 by attorneys
EB into the bank
account of the company, and opined that these monies were the only
asset of the company.
[68]
He also avers that another creditor at the time, attorneys CDH, had
issued summons against the company, New Africa Alliance
Holdings
(Pty) Ltd, Reuben and Narsi, in the Johannesburg High Court on 16
July 2014, for payment of the aggregate amount of R339
973,23 for
legal fees.
[69]
On 13 November 2014, presumably by way of interlocutory relief in
this application, Maharaj successfully secured urgent interdictory
relief to prevent the dissipation of the monies paid by EB into the
company's bank account. An order of Court was made by Mr Justice
Tuchten in which the company undertook not to dissipate or pay funds
in its bank account to either its shareholders or directors,
pending
finalisation of this application. If it had to pay any bona fide
debts, it would inform Maharaj's attorney before such
debts were
paid. Maharaj's replying affidavit was due for service by 14 November
2014, and the parties could re-enrol the application
once the papers
had been attended to and heads of argument filed. The issue of
urgency and the costs of senior counsel were reserved.
[70]
In response to Maharaj's assertion that the company is commercially
insolvent, Reuben, on behalf of the company, avers that
this is
"absurd",
and that the payment to the company of the
sum of R6 896 358,61 was not its only asset.
[71]
In reply, Maharaj admits that R6 896 358,61 was paid to the company
on 24 October 2014. He attaches what purports to be a "detailed
calculation of the company's assets and liabilities showing that it
is allegedly
"factually and commercially insolvent."
This calculation is by no means detailed. It simply lists funds
held as assets, of R1 714 379,54, less shareholders' loans of R6
767
119,00 owed to him and R3 120 000,00 owed to Narsi.
[72]
Maharaj refers to the schedule of disbursements attached to Reuben's
answering affidavit. Maharaj points out that, in October
2014, Reuben
and Narsi had been paid an aggregate of R1 880 000,00 from the monies
paid to the company. Maharaj had received no
payment at all from
these proceeds.
[73]
The schedule reveals that, apart from payments to lawyers and
auditors, and a loan made by "Sparepro", the following
payments were made:
a. R380 000,00 in
consulting fees to Narsi on 31 October 2014;
b. R380 000,00 in
consulting fees to Reuben on 31 October 2014;
c. R1 500 000,00 by way
of shareholders loan to Narsi on 8 November 2014;
d. R1 500 000,00 by way
of shareholders loan to Reuben on 8 November 2014.
[74]
It is apparent from this schedule that, between 30 October 2014 and
12 November 2014, (coincidentally, one day before the interdict),
payments totalling R5 181 978,46 in the aggregate had been disbursed
from the company's bank account.
[75]
Maharaj complains that Messrs Reuben and Narsi had embarked on a
mission to deplete the funds remitted to the company's bank
account
and that they were not entitled to enrich themselves at the expense,
and to the prejudice of, the company's creditors.
It was of paramount
importance that a liquidator should be appointed to investigate the
conduct of Messrs Reuben and Narsi, to
set aside impeachable
transactions, and to investigate the financial and commercial affairs
of the company. He comments that Messrs
Reuben and Narsi are
"unable
to distinguish between the funds to which they are entitled and the
funds which belong to the respondent'
and accuses them of using
the company's bank account as their "piggy bank."
[76]
In his answer, Reuben confirms payment to attorneys CDH of the sum of
R430 230,93 and payment to attorneys Naidoo Maharaj ("NM")
of R600 000,00 for legal fees. He mentions that the company had been
granted at least two costs orders against Maharaj in proceedings
under case numbers 15377/2013 and 17811/2013. The company intended to
tax the costs. Reuben tenders to pay to Maharaj the sum of
R1.5
million less the attorney and own client legal costs of CDH and NM
,
with the resultant balance being R469 769,07. On taxation, any
difference between what was taxed and the attorney and own client
costs would be refunded to Maharaj. In reply, Maharaj denies any
liability for untaxed costs, rejects the offer, and persist in
his
claim to payment of R6 767 119,00.
[77]
Reuben asserts that, regarding any winding up of the respondent:
"A winding up
will have catastrophic consequences for the company, and cost it
unnecessarily by having to pay liquidators their
allowance on
whatever is recovered, to the disservice of the shareholders."
[78]
Maharaj's founding affidavit asserts that he is a creditor of the
company for the sum of R7 570 000,00, and had issued summons
for this
amount. In its answer, Reuben asserts that the company intends to
defend this action.
[79]
Reuben admits that Maharaj is a creditor and that he and Narsi are
also creditors. He mentions the facts that certain payments
had been
made to the shareholders. In support of this, he refers to the
various distributions which took place between May 2009
and December
2009.
[80]
At paragraph 12.13 of the answering affidavit, Reuben states:
"The applicant
has accordingly been repaid the sum of R2.2m. The balance thus owing
by the company to the applicant on loan
account is therefore R4.8m."
[81]
In reply, Narsi disputes the amount owing to him. He refers to a
different amount of RS 967 119,00 (without any detailed
corroboration)
and avers that, after deducting R2,2 million from
this, the balance comes to R6 767 119,00. He relies on what he terms
a "detailed
calculation", which is patently devoid of
detail. He asserts that his start up capital was RS 967 119,00,
without providing
any independent corroboration for this.
[82]
Reuben avers that, in May 2012, when further monies were received
when Ehlobo Resources sold its interest in Umcebo Mining,
the net
proceeds being R6 295 853,00, it was proposed that the shareholders
distribute the sum of R2 000 000,00 to Reuben (for
New African
Alliance Holdings), to Narsi, (for New African Alliance Holdings),
and to Maharaj, with the balance to be held in trust
by the auditors,
AMA. Maharaj refused to sign the resolution and contended that he
remained a 50% shareholder. In his reply Maharaj
avers that "a
deadlock ensued between the company's members"
and that
he was
"uncomfortable and not prepared to sign the resolution
for obvious reasons."
[83]
On the subject of Maharaj's removal as director of the company,
Reuben avers that this is irrelevant. Maharaj replies that
his
removal took effect from 27 March 2013, immediately after the funds
of some R6,2 million were paid to attorneys EB and after
he had
disputed the dilution of the shareholding in the company. He was
removed as a director to enable Messrs Reuben and Narsi
to access
their advances. Maharaj comments in reply:
"This issue goes
to the very heart of the deadlock which came about between the
members and shareholders of the Respondent.
It is disingenuous and
dishonest to allege that no deadlock exists.
[84]
Maharaj goes on to contend that he is at least a 20% shareholder in
the company. In answer, Reuben concedes that Maharaj is
a 20%
shareholder.
[85]
It is important to note that Reuben asserts in his answer at
paragraph 24.3 that
"There are no
other creditors of the company who have not been paid and the company
is indeed able to pay its debts
as
and when they fall due for
payment.
[86]
In conclusion, Maharaj states at paragraph 21:
"Not only is the
Respondent company commercially insolvent and unable to pay its
debts, it is just and equitable that the Respondent
company be wound
up for reasons that include the fact that the company is not
conducting any business. There is a deadlock in the
management of the
Respondent company
as
the directors of the Respondent company
does not get along at all and cannot manage the Respondent Company's
affairs.
[87]
The essence of the company's answer is this: the application is
stillborn because, for a winding up on just and equitable grounds,
Messrs Reuben and Narsi should have been joined as co-respondents.
There is no deadlock in the management as Reuben and Narsi manage
the
company alone. They are the directors and there is no deadlock
between them. The suggestion that Maharaj has been oppressed
is
unsubstantiated.
[88]
Maharaj asserts at paragraph 22 of his founding affidavit that the
company has no employees other than its directors. The company
does
not deny this.
[89]
Between 19 November 2014, and the hearing of this matter on 2
November 2016, there is no explanation of any developments between
the parties. This application was enrolled for hearing on 1 August
2016, but was postponed to 31 October 2016, with no order as
to
costs, and argument was heard on 2 November 2016. After hearing
argument, I gave an order granting the final winding up of the
company, I undertook to provide reasons for my judgment in due
course.
[90]
I turn to an analysis of the law as it applies to the facts in this
application. While Counsel for both parties referred me
to a plethora
of authorities and advanced various arguments, I have resolved to
confine this judgment to matters which are strictly
germane to the
material issues.
[91]
There is insufficient evidence in the papers to substantiate a
conclusion that the company is insolvent. I cannot rely on Maharaj's
rather crude calculations concerning this issue, despite the fact
that the company failed to produce any annual financial statements
to
motivate its solvency.
[92]
I accept that Maharaj was at a disadvantage since he was no longer
privy to the company's financial affairs after his removal
as
director in May 2013, and even before then. There is no objective
evidence from which any inferences as to insolvency may be
drawn.
[93]
The only basis on which the company in casu may be wound up,
therefore, is for just and equitable reasons. The starting point
is
section 81(1)(d)(iii) of the 2008
Companies Act, which
provides for
the winding up of a solvent company where:
"(d) the company,
one or more directors or one or more shareholders have applied
to the court for an order to wind up
the company on the grounds that-
(i)
The
directors are deadlocked in the management of the company, and the
shareholders are unable to break the deadlock, and-
(aa) Irreparable
injury to the company
is
resulting, or may result, from the
deadlock; or
(bb) The company's
business cannot be conducted to the advantage of shareholders
generally,
as a
result of the deadlock;
(ii)
The
shareholders are deadlocked in voting power, and have failed for a
period that includes at least two consecutive annual general
meeting
dates, to elect successors to directors whose terms have expired; or
(iii)
It is
otherwise just and equitable for the company to be wound up....."
[94]
In
Apco Africa Incorporated v Apco Worldwide (Pty) Ltd and
another
(2008) 4 All SA 1
SCA
,
the Court expostulated
two principles which applied to a winding up on just and equitable
grounds. They were where:
a. there is a justifiable
lack of confidence in the conduct and management of the company's
affairs grounded on conduct of the directors
in regard to the
company's business;
b. in small domestic
companies, there exists amongst its members a particular personal
relationship of confidence and trust similar
to that existing between
partners in a partnership and if, by the conduct of one or more
members, the relationship is destroyed.
[95]
In the case of
Thunder Cats Investments 92 (Pty) Ltd and
another v Nkonjane Economic Prospecting and Investment (Pty) Ltd and
others
2014 (5) SA 1
SCA,
the SCA found that the Court a quo
had quite correctly granted a winding up order against the appellant
on just and equitable grounds.
[96]
The SCA considered section 344(h) of the 1973
Companies Act as
analogous to
section 81(1)(d)(iii)
and held that the just and
equitable ground in the latter section retained its wide scope.
[97]
At paragraph 15 at page 9B to F, the Court had the following to say
on the subject:
"There is no
fixed category of circumstances which may provide a basis for a
winding-up on the just and equitable ground. In
Sweet v Fairbairn
1984 (3) SA 441
W,
it was said:
'The ground is to be
widely construed,- it confers
a
wide Judicial discretion, and
it is not to be interpreted
so as
to exclude matters which are
not ejusdem generis with the other grounds specified in
s344.
The
fact that the Courts have evolved certain principles
as
guides
in particular cases, or examples of situations where the discretion
to grant
a
winding up order will be exercised, does not
require or entitle the Court to cut down the generality of the words
'Just and equitable"'.
[98]
And at paragraph 16 E to F, page 9 of
Thunder Cats
:
"Some of the
categories that have been identified are the disappearance of a
company's substratum; illegality of the objects
of the company and
fraud connected in relation to it,
a
deadlock; oppression; and
grounds similar to the dissolution of a partnership. A 'deadlock'
which, because of
a
divided voting power at both the board and
general meetings, affected the management of the company could also
found
a
liquidation order on this ground. No doubt these
categories remain under the new Act and may be extended."
[99]
At paragraph 17 A to B, page 10 of
Thunder Cats
:
"The 'deadlock'
principle, on the other hand, is-
'founded on the
analogy of partnership and is strictly confined to those small
domestic companies in which, because of some arrangement,
express,
tacit or implied, there exists between the members in regard to the
company's affairs
a
particular personal relationship of
confidence and trust similar to that existing between partners in
regard to the partnership
business."'
[100]
At paragraph 28 H to I, page 11 and paragraph 29 A to B page 14 of
Thunder Cats:
"(28).........A
court should thus assess the respective contributions to the
breakdown to determine whether it is Just and
equitable to liquidate.
But a party's fault should not necessarily deter
a
court from
winding up-
'so
that the paralysis
.....may be eliminated, a competent functionary (in the person of a
liquidator) may be placed in control of (the
company) and that
functionary may address the question of where the best interests of
(the company) lie."'
"(29) Vermeulen
AJ found that the blame for the breakdown in the relationship could
not be apportioned with precision. He nevertheless
held that the
respondents' blameworthiness was no greater than that of the
appellants. An equal apportionment of blameworthiness
he thought
might be somewhat charitable to the appellants but not an outright
injustice to the respondents. I cannot fault his
reasoning."
[101]
Finally, I refer to the precepts established by
Plascon-Evans
Paints (Pty) Ltd v Van Riebeeck Paints (Pty) Ltd 1984(3) SA 623 SCA
.
Where final relief is sought and there is any dispute of fact
relating to relevant issues, an applicant may rely on the
respondent's
averments, so much of the applicant's averments as are
admitted by the respondent, and not denied by the respondent, and not
genuinely
denied by the respondent. In my view, there are no bona
fide, genuine, material disputes of fact which would preclude final
relief
in casu.
[102]
I return to the facts in casu. In granting a final winding up order,
I am satisfied, on a balance of probabilities, that the
applicant had
discharged the onus of proving that just and equitable grounds
justified such an order.
[103]
I have taken cognisance of the following salient facts. On the
company's own admission, Maharaj is a shareholder of 20% of
the
shares in the company and is owed at least R4,8 million. His locus
standi is incontrovertible. (Maharaj maintains that he remains
a 50%
shareholder). On the company's own version, a "deadlock"
between the directors resulted in the removal of Maharaj
as a
director on 8 March 2013. Maharaj disputes the validity of his
removal as director. His removal occurred at a time when Maharaj
disputed the dilution of his shareholding on irregular grounds.
Maharaj had also insisted that he, Reuben and Narsi should have
joint
signing powers on the bank account of the company, so that all three
of them should authorise any transactions. Reuben and
Narsi disagreed
with this. On the version advanced by Reuben, under oath, in 2013,
the reinstatement of Maharaj as director would
have resulted in the
company being unable to conduct any business at all.
[104]
On the objective facts, since March 2013, Maharaj has not attended
any meetings of directors or shareholders of the company.
[105]
The preservation order granted by Ms Justice Potterill on 23 October
2013 had the effect of preserving a substantial amount
of money
accruing to the company, namely, R6 295 853,00. Significantly, Reuben
had admitted that in March 2013:
"currently however (the
company) is not trading and its only asset is an amount of cash held
in trust by (Edelstein-Bosman
Inc)."
[106]
Reuben's attempt to later retract this statement by averring that a
further R3 million to R4 million might become payable
to the company
appears disingenuous, a fortiori so in the absence of any detail or
corroboration to substantiate this bald allegation.
[107]
On 20 October 2014, the preservation application was dismissed under
circumstances in which there is a dispute concerning
whether due
notice of the enrolment was given to Maharaj's attorneys. While I
have not addressed these facts in detail, the very
fact that a
material dispute arose concerning whether proper notice was given to
Maharaj is yet another factor I may take note
of as evidence of the
dire nature of the deadlock between the parties.
[108]
Four days later, on 24 October 2014, the monies were paid by EB into
the bank account of the company.
[109]
On 13 November 2014, Mr Justice Tuchten interdicted the dissipation
of funds from the company's bank account pending finalisation
of this
application.
[110]
In the interim, however, between 30 October 2014 and 12 November
2014, already R5 181 978,46 had been paid out by the company.
Reuben
and Narsi had each received R1 880 000,00. These amounts included
management fees of R380 000,00 payable to Reuben and Narsi.
The sum
of R1 030 230,93 had been paid in toto to attorneys CDH and NM in
November 2014. In addition, in December 2013, CDH had
received R100
000,00 and NM had received R60 000,00. The legal fees paid in
December 2013 and November 2014 to CDH and NM total
the amount of R1
190 230,93.
[111]
It is noteworthy from the company's schedule of disbursements that
substantial fees were also paid to auditors AMA in December
2013 and
November 2014, totalling R282 005,23, without the company ever having
tendered sight of its annual financial statements
to Maharaj, this
despite the issues of insolvency raised by him in this application.
[112]
In the final analysis, it will probably turn out that the fees of a
liquidator will pale into insignificance when compared
with the fees
paid by the company for legal fees in fighting the disputes with
Maharaj over the past five years, which disputes
have had no
constructive end.
[113]
No money was paid to Maharaj when the November 2014 distribution took
place. In the company's answering affidavit in this
application, a
tender was made to pay the sum of R1,5 million to Maharaj after the
deduction of the attorney and own client costs
of CDH and NM for
costs orders against Maharaj which had not even been taxed and which
were therefore not due, owing and payable.
Set off could therefore
not apply in any event. It was correctly rejected.
[114]
Maharaj vacillates about the precise amount owing to him by the
company, and is uncertain of the company's solvency (which
is
understandable considering his removal qua director and his
distancing from its affairs). But these facts do not militate against
the patent and irredeemable deadlock which has arisen amongst the
shareholders.
[115]
From the proven facts, fortified by the version advanced by the
company in its affidavits in the preservation application
and in this
application, there is no longer any relationship of respect, trust or
confidence between Maharaj, on the one hand,
and Messrs Reuben and
Narsi, on the other. Maharaj has been treated as an oppressed
shareholder. There is no communication at all
amongst the parties.
[116]
There has been a multiplicity of litigation, involving several
applications before this Court, and a pending action in the
South
Gauteng High Court. Legal costs of great magnitude have already been
incurred, (they exceeded R1 million in November 2014),
and these
costs were owing as far back as two years ago. Further costs will
have been incurred for the two year period since November
2014.
[117]
There has been no constructive resolution to the prevailing impasse.
There is no evidence in the papers of any employees being
employed by
the company, nor of any creditors who may be prejudiced by the grant
of a final winding up order.
[118]
It is just and equitable for the company to be finally wound up, and
without further delay. There is only one mechanism by
which the
paralysis may be alleviated and that is by the appointment of an
independent liquidator, to take control of the affairs
of the company
and to investigate the veracity of all disputes raised by Maharaj in
respect of, inter alia, irregularities in the
dilution of his
shareholding, the distributions to Reuben and Narsi, including the
payment of management fees to them, the payment
of all other
disbursements, and the manner in which its affairs have been
conducted generally.
[119]
The liquidator will also be seized with the duty to distribute
amounts owing to creditors, equitably, in accordance with the
laws of
insolvency, having due regard to the concursus creditorum, and to
distribute any residue to the shareholders in the appropriate
proportions.
[120]
Judgment was accordingly granted on 2 November 2016 as follows:
a. The respondent is
placed under a final winding up;
b. The costs of the
application are costs in the winding up of the respondent.
_________________
T
BRENNER
ACTING
JUDGE OF THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
Appearances
Counsel
for Applicant: Adv JH Sullivan
Instructed
by: Attorneys Garlicke and Bousfield
For
the Defendant: Adv Singh assisted by Adv Singh
Instructed
by: Attorneys Naidoo Maharaj Inc